Ever since 2008, the SP500 has been consistently trading below a four quarter trailing PE of 15. Looking back, the main cause of this was the financial strain first with the US and then Europe. Thanks to the FED and ECB, the potential for a new financial shock from the western economies seems to have been mitigated. Albeit the issues in Europe are still being worked out, but by and large, the all-in approach of the ECB will mitigate new shocks from Europe. (This is also corroborated by the improvements in Ireland entering the bond markets and the declining rates in Greece.) The only real potential shock left is the Debt-Ceiling debate.
As the debt ceiling concern comes off the table, I am left pondering, what will be the issue that keeps the SP500 trading at a trailing PE below 15?
As earnings descend upon us, the true market driver will reveal friend or foe. If earnings can continue to grow at a steady pace, then there is little to justify the market to trade at a discount to pre-2008 historic norm.
Q1 should bring the trailing PE of the SP500 near $101. With a multiple of 15, the market can potentially trade to 1515.
While the debt debacle gets worked out, the technicals have me a bit cautious here due to the decline of the VIX in relation to the SP500.
On the flip-side to cautiousness, QCOM looks like it is breaking out. (Not thrilled about their release at CES with respect to Snapdragon, but Intel did not release anything disruptive either. So QCOM's position in mobile seems safe for the next 6-12 months. IMO, meriting a re-test of a multiple in the low 20s.)
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